The Kaneshita Construction Co.,Ltd. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥5.91B
• Operating Income: ¥9M
• Net Income: ¥259M
• EPS: ¥53.41

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

For FY2025 Q3, Kaneshita Construction (18970) posted revenue of ¥5,910 million, declining 23.2% YoY, indicating a weaker project execution pace and/or softer order intake versus the prior year. Gross profit was ¥943 million, yielding a gross margin of 16.0%, which is reasonable for mid-tier general contractors but suggests limited pricing power amid cost inflation. Operating income collapsed to ¥9 million (-96.5% YoY), compressing the operating margin to just 0.15%, implying a heavy SG&A burden and/or project cost overruns in the period. Despite poor operating profit, ordinary income reached ¥154 million, indicating material non-operating contributions (e.g., financial income, investment gains, or subsidies). Net income was ¥113 million (-54.3% YoY), with a net margin of 1.91%, underscoring subdued profitability. Using the provided DuPont inputs, ROE is 0.58% (Net margin 1.91% × Asset turnover 0.253 × Financial leverage 1.20), well below the sector norm for listed Japanese contractors. Balance sheet strength is notable: total assets of ¥23,322 million against total liabilities of only ¥3,025 million and equity of ¥19,505 million implies an equity ratio of approximately 83.6% (computed), despite the reported “0.0%” figure being an undisclosed value. Liquidity appears extremely robust with a current ratio of about 840% (¥12,078 million current assets vs. ¥1,438 million current liabilities) and working capital of ¥10,640 million. Leverage is structurally low with a debt-to-equity proxy of 0.16x (total liabilities/equity), providing substantial solvency headroom. The gap between operating and ordinary income suggests earnings quality is currently supported by non-operating items rather than core construction operations. Cash flow information, depreciation, interest, and dividend data are not disclosed (zeros reflect unreported), limiting the depth of cash flow and payout analysis. The effective tax burden appears elevated based on income tax of ¥125 million versus net income of ¥113 million, implying pre-tax profit around ¥238 million and an estimated tax rate of roughly 52–53%, though full reconciliation is not available. Revenue decline and operating margin compression point to execution risk and unfavorable mix/seasonality. Without cash flow data, free cash flow durability cannot be assessed; however, the fortress-like balance sheet provides a buffer against operational volatility. Overall, the company exhibits strong financial health but weak profitability and low ROE in the period, with a visible dependence on non-operating income to sustain ordinary profit.

Profitability Analysis

ROE_decomposition: Reported/Calculated ROE is 0.58%, derived from Net profit margin 1.91% × Asset turnover 0.253 × Financial leverage 1.20. The low ROE is driven primarily by weak net margin and modest asset turnover, despite conservative leverage. margin_quality: Gross margin is 16.0% (¥943m/¥5,910m), in line with typical building/construction ranges but insufficient to cover period SG&A and overhead, resulting in an operating margin of 0.15% (¥9m OI). Ordinary income (¥154m) significantly exceeds operating income, indicating reliance on non-operating gains. Net margin is 1.91%, compressed by high tax burden and limited operating profitability. operating_leverage: The sharp swing from acceptable gross margin to near-breakeven operating income suggests elevated fixed costs and/or one-off items. With revenue down 23.2% YoY, operating leverage worked negatively, magnifying the decline in operating profit (-96.5% YoY). A modest rebound in volume could materially improve OI if costs are largely fixed; conversely, further volume softness would risk losses.

Growth Assessment

revenue_sustainability: Revenue declined 23.2% YoY to ¥5,910m, implying weaker backlog conversion or project timing delays. Given construction’s percentage-of-completion recognition, the decline likely reflects both order intake dynamics and execution cadence; sustainability depends on replenishing backlog and normalizing site progress. profit_quality: Core profit quality is weak: operating income of ¥9m vs. ordinary income of ¥154m indicates non-operating support. The delta suggests exposure to market-sensitive items (e.g., dividends, valuation gains) or temporary factors rather than stable project profitability. outlook: Without disclosure on orders/backlog and cash flows, near-term visibility is limited. If input cost pressures ease and project mix normalizes, gross-to-operating drop-through could improve. However, the current run-rate implies low earnings power unless operating discipline and volume recover in coming quarters.

Financial Health

liquidity: Current assets ¥12,078m vs. current liabilities ¥1,438m yields a current ratio of ~839.9% and working capital of ¥10,640m, indicating ample liquidity. Quick ratio mirrors current ratio due to undisclosed inventories. solvency: Total equity ¥19,505m and total liabilities ¥3,025m imply an equity ratio of ~83.6% (computed) and a liabilities-to-equity of 0.16x. This conservative capital structure provides significant solvency headroom. capital_structure: Low financial leverage (DuPont leverage 1.20) limits ROE but enhances resilience. Interest expense is undisclosed (reported as 0), preventing interest coverage analysis; however, the balance sheet indicates minimal debt reliance.

Cash Flow Quality

earnings_quality: The sizable gap between gross profit and operating income highlights cost pressure and/or temporary charges. Ordinary income dependence on non-operating gains reduces recurring earnings quality. FCF_analysis: Operating CF and investing CF are undisclosed; Free Cash Flow is therefore not assessable for the period. As a result, OCF/NI and FCF coverage metrics cannot be interpreted. working_capital: Working capital is ¥10,640m, suggesting a strong liquidity cushion. The lack of inventory disclosure makes turnover assessment impossible; receivables/payables dynamics are unknown, limiting conclusions on cash conversion.

Dividend Sustainability

payout_ratio_assessment: Annual DPS and payout ratio are undisclosed. With EPS at ¥53.41 for the period, actual payout behavior cannot be determined. FCF_coverage: FCF is not disclosed; thus, dividend coverage by FCF cannot be assessed. policy_outlook: Given the under-levered balance sheet, the company likely has capacity for distributions in normal times, but current earnings volatility and lack of cash flow disclosure limit visibility on dividend sustainability or potential changes in policy.

Risk Assessment

Business Risks:

• Order intake volatility and backlog visibility in domestic construction markets
• Project execution risk, including cost overruns and schedule delays
• Input cost inflation for materials and labor impacting gross margins
• Weather-related disruptions and seasonality in construction activity
• Subcontractor availability and pricing pressures
• Customer concentration risk on large projects
• Regulatory and public works budget variability

Financial Risks:

• Low operating margin and dependence on non-operating income to support ordinary profit
• Potential working capital swings affecting cash conversion
• Limited transparency on cash flows, interest expense, and depreciation
• Potential impairment or valuation volatility of non-operating assets/income sources
• Tax rate volatility given the relationship between ordinary income and tax expense

Key Concerns:

• Operating income down 96.5% YoY to ¥9m, indicating very weak core profitability
• Revenue down 23.2% YoY, pressuring operating leverage
• Ordinary income (¥154m) materially above operating income, implying non-operating reliance
• Estimated elevated effective tax burden (~52–53%) despite weak operating result
• Lack of disclosed cash flow and depreciation data limits assessment of earnings durability

Investment Implications

Key Takeaways:

• ROE of 0.58% is depressed due to low net margin and modest asset turnover, despite conservative leverage
• Gross margin of 16.0% is being absorbed by SG&A/overheads, resulting in near-breakeven operating profit
• Ordinary income strength relative to operating income suggests non-recurring or non-core support
• Balance sheet is exceptionally strong with an estimated equity ratio of ~83.6% and current ratio ~840%
• Visibility on cash generation and dividend capacity is limited due to undisclosed cash flow and DPS data

Metrics to Watch:

• Order intake and backlog trends by segment
• Operating margin recovery (SG&A control, project mix, cost pass-through)
• Non-operating income composition and sustainability
• Working capital movements (receivables/payables, advances), cash conversion cycle
• Capex and depreciation run-rate when disclosed
• Tax rate normalization and effective tax reconciliation
• Any updates to dividend policy and payout intentions

Relative Positioning: Versus domestic mid-tier peers, the company exhibits superior balance sheet strength and liquidity but weaker current-period operating profitability and ROE, with greater reliance on non-operating income to sustain ordinary profit.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis